In this week’s edition of Economy and Society:
- California proposes narrowing Scope 3 emissions reporting
- California Cap-and-Invest program generated $36.2 billion since 2014
- ESG legislation update
- European Central Bank expands climate risk to corporate credit claims
- EU sustainability standard-setter reports rise in corporate climate plans
- Impact funds raised $31 billion in 2025
In the states
California proposes narrowing Scope 3 emissions reporting
What’s the story?
The California Air Resources Board (CARB) proposed limiting companies' initial, mandatory Scope 3 (indirect value chain) emissions disclosures to five of 15 categories under the state's corporate climate reporting law. CARB presented the proposal July 22 during a public workshop on the California Corporate Greenhouse Gas Reporting Program, created under SB 253.
The five categories are purchased goods and services, fuel and energy related activities, waste generated during operations, business travel, and employee commuting. CARB said the categories already have "some of the most established data sources and mature quantification methods." CARB did not specify mandatory reporting requirements for the remaining 10 Scope 3 categories but proposed that companies report on those categories voluntarily. Scope 3 reporting begins in 2027.
Why does it matter?
Scope 3 emissions are harder for companies to measure than Scope 1 (direct) or Scope 2 (indirect, energy-related) because they cover indirect emissions across a company's entire value chain. They include suppliers, business travel, and employee commuting, rather than emissions from sources that the company owns or directly controls.
Companies raised concerns about the cost and availability of data needed to quantify emissions across the remaining 10 categories. This led CARB to prioritize the five categories that it said already have established data sources and measurement methods.
What’s the background?
Governor Gavin Newsom (D) signed SB 253 on Oct. 7, 2023. It requires companies with more than $1 billion in annual revenue that do business in California to report Scope 1, Scope 2, and Scope 3 emissions annually. CARB approved implementing regulations in February 2026 but withdrew them from the Office of Administrative Law to revise the rules. Later, CARB delayed companies' Scope 1 and Scope 2 reporting deadlines from Aug.10, 2026 to Nov. 10, 2026.
California Cap-and-Invest program generated $36.2 billion since 2014
What’s the story?
According to its 2026 Annual Report released to the California Legislature on July 20, 2026, CARB reported that its Cap-and-Invest program, the state's carbon-pricing mechanism, has generated $36.2 billion for climate investments since 2014. CARB reported that the state had distributed $15.5 billion of that total across 122 programs. CARB Chair Lauren Sanchez said, "For over a decade Cap-and-Invest has been an important funding source for many of the state's priorities. This landmark policy is responsible for reducing the state's largest sources of emissions and directing billions of dollars into communities that suffer most from environmental harm."
CARB reported that 76%, or $11.4 billion, of distributed funding has benefited communities the agency designates as disadvantaged and low-income. It estimated the projects will reduce emissions by 130.5 million metric tons of carbon dioxide equivalent over their lifetimes. CARB reported that it generated $44.4 billion in cost savings from reduced fuel consumption, transit expenses, and household energy bills.
What’s the background?
Governor Arnold Schwarzenegger (R) signed AB 32 into law in 2006. It established the framework for CARB to create a program capping and pricing greenhouse gas emissions from the state's largest polluters. CARB launched the program, then known as Cap-and-Trade, in 2012, holding its first allowance auction that November and beginning mandatory compliance in January 2013. The program sets a declining limit on emissions from facilities producing 25,000 metric tons or more of carbon dioxide equivalent annually, including power plants and oil refineries. It also requires those facilities to purchase tradable allowances for each ton of emissions.
Governor Newsom signed AB 1207 and SB 840 into law on Sept. 19, 2025, renaming the program Cap-and-Invest and extending its authorization through 2045.
In January 2026, CARB released draft updates to the program's rules, intended to align it with the state's 2030 and 2045 climate targets while limiting effects on household energy costs. CARB estimated the revised program would provide $10 billion in electricity bill relief through customer credits and generate an additional $8 billion for the state's Greenhouse Gas Reduction Fund through 2030.
Critics have challenged CARB's framing of the program as investment revenue. Before AB 1207 and SB 840 passed, state Senator Tony Strickland (R-Huntington Beach) said, "We cannot sacrifice economic stability and affordability for false climate promises."
ESG legislation update
No states took action on ESG-related bills since July 7, 2026. Click here to see the ESG legislation tracker.
Around the world
European Central Bank expands climate risk to corporate credit claims
What’s the story?
The European Central Bank (ECB) announced July 24, 2026, that it will extend its climate factor to corporate loans. The climate factor reduces the value ECB assigns to assets banks pledge as collateral for Eurosystem loans, based on climate-related risk. A lower assigned value means a bank can borrow less against that asset, or must pledge more collateral to borrow the same amount, making loans backed by climate-risk assets costlier to access.
The ECB said, "Collateral pledged by counterparties in Eurosystem refinancing operations may be exposed to unexpected climate-related transition shocks, such as changes in climate policy, technological developments, shifts in consumer behaviour, litigation and broader macroeconomic adjustments."
The ECB set a maximum additional reduction of 5% on any single asset's value. The reduction is not applied once. The ECB recalculates it periodically as new data becomes available, and applies it each time it assesses an asset's value for lending purposes. The ECB plans to implement the extension by the end of 2027 at the earliest and will update climate factor values annually.
Why does it matter?
The Eurosystem, the network of central banks that implements monetary policy for countries using the euro, makes all the loans now covered by the extension. For publicly traded corporate bonds, the climate factor already lowers the value the ECB assigns to a bond when a bank pledges it as collateral for a loan. This does not affect the bond's price on the open market. It reduces how much money a bank can borrow against that bond, the same way the loan extension will now work for corporate loans.
The ECB said the climate factor for each asset will draw on three elements: a sector-level stressor from its climate stress tests, the borrower's exposure to transition-related uncertainty, and the loan's remaining maturity.
The ECB said, "The extension is designed to further strengthen the Eurosystem's risk management framework by addressing financial uncertainties related to the green transition."
What’s the background?
The ECB Governing Council approved an initial climate factor covering corporate bonds pledged as collateral in July 2025. On May 8, 2026, the ECB published a compendium of good practices for climate and nature-related risk management, after ECB Executive Board Member Frank Elderson wrote that banks' risk methods "are still in their infancy with risks very likely being underestimated." The measure took effect June 15, 2026.
The ECB said the climate factor protects the Eurosystem from potential losses if a counterparty defaults. The Central Bank may need to sell collateral whose value has dropped due to climate-related shock. The ECB said it will not publicly disclose the climate factor values assigned to individual credit claims.
EU sustainability standard-setter reports rise in corporate climate plans
What’s the story?
The European Financial Reporting Advisory Group (EFRAG) published its second State of Play report July 1, 2026, reviewing 905 sustainability statements companies prepared under the European Sustainability Reporting Standards (ESRS) for fiscal year 2025. EFRAG found that 69% of companies disclosed a climate transition plan, up from 55% a year ago.
EFRAG Board Chair Kerstin Lopatta said the report offers "a factual contribution to a debate that deserves to be grounded in evidence." Among companies in the sample, those headquartered in Spain had the highest rate of climate transition plan disclosure at 89%, followed by France at 85%, and Denmark at 81%. Real estate companies reported the highest sector adoption, at 95%.
Why does it matter?
EFRAG found that only 57% of companies disclosed near-term and long-term decarbonization targets compatible with limiting warming to 1.5 degrees Celsius, a rate 12 percentage points below overall transition plan adoption. Companies identified an average of 6.4 of the 10 ESRS sustainability topics as material to their business but set measurable targets for only 3.3 of them.
EFRAG also found that 63% of companies linked sustainability performance to executive incentive schemes, leaving 37% without a formal connection between sustainability results and executive pay. Spain had the highest share of companies embedding sustainability targets in executive incentive schemes, at 92%, followed by France at 90%, and Germany at 84%.
The report comes on the heels of several asset managers announcing major funds that include environmental or social goals. In October 2025, EFRAG published its first state of play report, reviewing 656 sustainability statements from the inaugural year of mandatory reporting under the EU's Corporate Sustainability Reporting Directive (CSRD). EFRAG expanded the 2026 report's methodology to add questions on companies' materiality assessment methods, target-incentive linkages, and geographic breakdown of environmental data, and to include governance disclosures for the first time.
The European Commission adopted revised ESRS July 3, 2026, as part of its Omnibus I initiative to simplify EU sustainability reporting requirements. The delegated act remained subject to scrutiny by the European Parliament and the Council of the European Union.
On Wall Street and in the private sector
Impact funds raised $31 billion in 2025
What’s the story?
Private equity, infrastructure, real estate, and private debt funds seeking measurable environmental or social benefits alongside financial returns raised $31 billion in 2025, according to Preqin, a London-based private markets data provider. The total was roughly unchanged from 2024.
Infrastructure-focused impact funds, many of which invest in renewable energy, accounted for $24 billion of the 2025 total. Impact funds raised $13 billion during the first part of 2026, a pace that would produce a slightly lower annual total. Preqin said reporting delays could increase that figure later in the year.
Why does it matter?
The figures indicate that demand for impact-focused private investments has remained steady even as investors have withdrawn money from publicly traded environmental funds. Global sustainable mutual funds and exchange-traded funds recorded their first full year of net outflows in 2025. However, fundraising has increasingly favored funds focused on specific areas such as renewable energy over funds combining several environmental and social objectives.
PitchBook researcher Hilary Wiek said, "You can’t just say you want a social good, you need a good return."
What’s the background?
Brookfield Asset Management closed a $20 billion energy-transition fund in October 2025, which the company described as the world's largest private transition fund dedicated to the transition to net zero. Copenhagen Infrastructure Partners also raised €12 billion for a fund focused on large renewable energy projects.